Question

All of the following statements are correct EXCEPT: a. immediately after the announcement of a planned acquisition, the stock price of the majority of acquiring firms declines. b. shareholders of acquired firms often earn above-average returns from an acquisition. c. the majority of acquisitions increase long-term value for the acquiring firm. d. shareholders of acquiring firms typically earn returns from the transaction that are close to zero.

Answer 1

All of the given statements are correct except the majority of acquisitions increase long-term value for the acquiring firm.

Answer: Option C

Explanation:

Acquisition can be very strategic for companies as it is a process by which one company buys some or all of the shares of other company and assimilate in itself. It is very commonly seen that the stock price of the acquiring firms declines once the announcement of planned acquisition is made.

One of the interesting aspects of acquisition is that shareholders of acquiring firms usually earn very little returns which are almost zero whereas the shareholders of acquired firms earn returns above the average returns.